Practice and procedure: Market dominant and competitive postal products; rate regulation; comment request,

[Federal Register: May 25, 2007 (Volume 72, Number 101)]

[Proposed Rules]

[Page 29284-29287]

From the Federal Register Online via GPO Access [wais.access.gpo.gov]

[DOCID:fr25my07-16]

POSTAL REGULATORY COMMISSION

[Docket No. RM2007-1; Order No. 15]

39 CFR Part 3001

Administrative Practice and Procedure, Postal Service

AGENCY: Postal Regulatory Commission.

ACTION: Advance notice of proposed rulemaking.

SUMMARY: The Commission has received general comments on the development of regulations implementing new statutory provisions pertaining to market dominant and competitive postal products. It now seeks more specific comments on the same topic. The Commission anticipates using these comments as guidance for drafting proposed regulations.

DATES: Initial comments due June 18, 2007; reply comments due July 3, 2007.

ADDRESSES: Submit comments electronically via the Commission's Filing Online system at http://www. prc.gov.

FOR FURTHER INFORMATION CONTACT: Stephen L. Sharfman, General Counsel, 202-789-6820 and stephen.sharfman@prc.gov.

SUPPLEMENTARY INFORMATION:

Regulatory History

72 FR 5230 (February 5, 2007).

1. Introduction

   Thirty sets of initial comments were filed in response to Order No. 2, which afforded interested persons an opportunity to comment on how the Commission can best fulfill its responsibilities under the Postal Accountability and Enhancement Act (PAEA), Public Law 109-435, 120 Stat. 3198 (December 20, 2006), regarding establishing rate regulation for market dominant products and competitive products.\1\ Twenty-one sets of reply comments were also filed. The Commission appreciates those thoughtful and comprehensive comments and has found them very useful. For the most part, the comments are general in nature, taking a more global view of the type of regulations to be implemented, e.g., endorsing a light-handed approach, or advocating that competitive products make the maximum possible contribution to institutional costs,\2\ rather than suggesting specific proposals to implement the PAEA.\3\

   \1\ PRC Order No. 2, Advance Notice of Proposed Rulemaking on Regulations Establishing a System of Ratemaking, Docket No. RM2007- 1, January 30, 2007.

   \2\ See, e.g., Initial Comments of the United States Postal Service, April 6, 2007, at 4-5; Comments of Alliance of Nonprofit Mailers, National Association of Presort Mailers and National Postal Policy Council on Advance Notice of Proposed Rulemaking, April 6, 2007, at 4; Initial Comments of Time Warner Inc. in Response to Commission Order No. 2, April 6, 2007, at 9; Comments of United Parcel Service in Response to Advance Notice of Proposed Rulemaking on Regulations Establishing a System of Ratemaking, April 6, 2007, at 5.

   \3\ Some commenters did suggest that provisions of the PAEA be defined in certain ways. See, e.g., Reply Comments of the United States Postal Service, May 7, 2007, at 3-10, and Appendix C; Initial Comments of Pitney Bowes Inc. in Response to Advance Notice of Proposed Rulemaking on Regulations Establishing a System of Ratemaking, April 6, 2007, at 3-4, 17-20, 35-36; and Comments of the Parcel Shippers Association, April 6, 2007, at 24-26.

   In considering the regulations to be issued pursuant to sections 3622 and 3633 of the Postal Reorganization Act, as amended by the PAEA, the Commission concludes that the record would be enhanced by affording interested persons an opportunity to comment more specifically on potential ways to implement the statutory language prior to issuing proposed regulations. Therefore, the Commission is issuing this second advance notice of proposed rulemaking inviting interested persons to comment on specific issues central to implementing the necessary regulations. Interested persons are invited to comment on all (or any) of the following issues. Parties are encouraged to explain the basis for their position. The explanation need not be lengthy but should include whatever support the commenter believes to be relevant. Furthermore, although section III, below, addresses competitive products, persons primarily interested in market dominant products may wish to comment on common issues, e.g., section III, item 9, concerning the term ``product.'' Comments are due June 18, 2007. Reply comments are due July 3, 2007.

   Following this round of comments, the Commission intends to issue a formal notice of proposed rulemaking setting forth specific rules applicable to rate changes for market dominant and competitive products. Interested persons will have an opportunity to comment on those proposed rules. It is the Commission's current expectation that the final rules on these topics will be issued before the end of October, 2007.

2. Regulations Concerning Market Dominant Products

   1. In Appendix C of its reply comments, the Postal Service provides a series of examples to illustrate its proposal for calculations that would

      [[Page 29285]]

      ensure compliance with the price cap defined in sections 3622(d)(1)(A) and (2)(A). In part C of the appendix, the Postal Service describes its proposed method of calculating the CPI cap limitation. The cap would be equal to the difference between the most recently available monthly CPI and the monthly CPI for the same month of the previous year, divided by the monthly CPI for the previous year. The same result is reached by dividing the most recently available monthly CPI by the monthly CPI for the same month of the previous year and then subtracting one from the quotient.

      This point-to-point approach may be contrasted with an alternative that would compare aggregated monthly CPI figures instead of those of a single month. For example, the most recently available monthly CPI could be averaged with the previous 11 monthly CPI values. This 12- month average could then be compared to the average for the previous 12 months in the same way that the single-month figures are in the Postal Service's proposal. Figures 1 and 2 show the cap as it would be calculated under both methods for each month in 2005 and 2006, respectively.

      [GRAPHIC] [TIFF OMITTED] TP25MY07.001

      [GRAPHIC] [TIFF OMITTED] TP25MY07.002

      As the graphs show, the results of the point-to-point method exhibit a greater variation based on the month that is selected. The parties are requested to comment on the merits of each method and may offer additional alternatives. Please discuss how each method conforms to the language in section 3622(d), as well as how each method comports with the objectives in section 3622(b) and the factors in section 3622(c).

   2. Appendix C of the Postal Service reply comments provides a series of examples to illustrate its proposal for

      [[Page 29286]]

      calculations that would ensure compliance with the price cap defined in sections 3622(d)(1)(A) and (2)(A). Part B of the appendix describes the Postal Service's proposed method of calculating the annual change in rates to which the CPI cap shall be applied.

      The discussion begins by proposing principles (``Standards 1 and 2'') that the measure of the change in rates should satisfy. It concludes that any fixed volume weighting system will satisfy those principles. After explaining the practical impediment to the use of the ideal weights, it describes the weaknesses of two potential methods of measuring the base rates.

      The Postal Service proposes to use the most recent 12 months of available data to establish the volume weights and to recalculate average revenue per piece by applying those weights to the current rates. The result would be considered the average base rate. The average new rate would then be calculated by applying the same weights to the new set of rates. The percentage difference between the average base (current) rate and the average new rate would be compared to the percentage change in CPI.

      Parties are requested to comment on the method of calculating the annual change in rates under section 3622(d). Please discuss the strengths and weaknesses of the methods described by the Postal Service in Appendix C of its reply comments (and alternative methods, if desired) and how each method comports with the objectives in section 3622(b) and the factors in section 3622(c). Please include a discussion of how to treat an altered rate design, for example, one for which billing determinants do not exist, such as the new rates to be applied to Periodicals.

   3. Section 3622(e) directs the Commission to ``ensure that workshare discounts do not exceed the cost that the Postal Service avoids as a result of the workshare activity,'' except in certain specified situations. In the context of a Notice of Rate Adjustment for a class of mail--

      1. What information and/or data are needed to allow the Commission to evaluate whether new workshare discounts are consistent with this standard?

      2. What information and/or data are needed to allow the Commission to evaluate whether unchanged workshare discounts remain consistent with this standard?

      3. What information and/or data are needed to allow the Commission to evaluate whether changed workshare discounts remain consistent with this standard?

3. Regulations Concerning Competitive Products

   4. Subchapter II of title 39, 39 U.S.C. 3631-3634, sets forth the provisions applicable to competitive products, which initially are to consist of priority mail, expedited mail, bulk parcel post, bulk international mail, and mailgrams. Sec. 3631(a).\4\ A procedure must be established to allow for amending this list of competitive products.

      \4\ Pursuant to section 3642, the Commission may change the list of competitive products under section 3631 and market dominant products under section 3621 by adding new products to or removing products from the lists, or transferring products between the lists.

      Regarding section 3631--

      1. What current mail matter is ``priority mail''?

      2. What current mail matter is ``expedited mail''?

      3. What current mail matter is ``bulk parcel post''?

      4. What current mail matter is ``bulk international mail''?

      5. What, if any, current mail matter is ``mailgrams''?

      6. To what does ``mail classification schedule,'' as used in section 3631(c), refer?

   5. Section 3632 authorizes the Governors to establish rates and classes of mail for competitive products in accordance with subchapter II of chapter 36 and regulations promulgated by the Commission under section 3633. The rates and classes shall be established in writing, accompanied by a statement of explanation and justification and the effective date of each rate or class. Sec. 3632(b)(1).

      Regarding section 3632--

      1. What information is needed to support new rates of general applicability?

      2. What information is needed to support new rates not of general applicability?

      3. Is the information needed to support a rate decrease different from that needed to support a rate increase? Please elaborate.

      4. What information is needed to support new classes of general applicability?

      5. What information is needed to support new classes not of general applicability?

      6. What criteria should be used to determine whether a rate or class is of general applicability or is not of general applicability in the Nation as a whole?

      7. How should ``any substantial region of the Nation'' be defined?

   6. Pursuant to section 3633(a), the Commission is required to promulgate regulations applicable to rates for competitive products to:

      ``(1) prohibit the subsidization of competitive products by market- dominant products;

      (2) ensure that each competitive product covers its costs attributable; and

      (3) ensure that all competitive products collectively cover what the Commission determines to be an appropriate share of the institutional costs of the Postal Service.''

      Regarding section 3633--

      1. What data should be filed periodically with the Commission to enable it to assess the Postal Service's compliance with subsection:

      9. (a)(1),

         ii. (a)(2), and

         iii. (a)(3)?

      2. How frequently, e.g., quarterly, annually, should such data be filed with the Commission?

      3. Are existing data systems adequate to enable the Commission to assess the Postal Service's compliance with section 3633(a)? If not, what modifications would be necessary?

      4. What is the appropriate standard for determining whether competitive products are being subsidized by market dominant products?

      5. What standard should be applied to determine the appropriate share of institutional costs to be recovered collectively from competitive products?

      6. Over what period of time should the standard identified in (e) be deemed valid?

      7. Should the standard identified in (e) raise a rebuttable presumption of validity?

      8. If return on investment (or assets) is used, what capital structure (assumed or otherwise) should be used for the Postal Service?

   7. Section 3634 provides for an annual, assumed Federal income tax on the competitive products income. The amount of the assumed tax is to be transferred from the Competitive Products Fund to the Postal Service Fund.\5\

      \5\ Pursuant to section 2011(h) the Secretary of the Treasury is charged with developing recommendations regarding, inter alia, rules for determining the assumed Federal income tax on competitive products income for any year. Following receipt of those recommendations, which are due not earlier than June 20, 2007 or later than December 19, 2007, the Commission will provide interested persons an opportunity to comment on the recommendations.

      Regarding section 3634--

      1. Is the assumed Federal income tax amount appropriately classified as an attributable cost?

      2. On what basis should the assumed Federal income tax amount be reasonably assigned among competitive products?

      [[Page 29287]]

   8. Section 3633(a)(2) requires each competitive product to cover its ``costs attributable,'' which are defined as ``the direct and indirect postal costs attributable to such product through reliably identified causal relationships.'' Sec. 3631(b). The Commission has historically used attributable costs to develop recommended rates under the Postal Reorganization Act. Enactment of the PAEA raises issues concerning the need, if any, to modify the Commission's historic approach as well as the classification of costs arising under the PAEA.

      Regarding the term ``costs attributable''--

      1. Identify any costs currently classified as attributable that, in light of PAEA, should be classified as institutional. The rationale for the proposed change should be explained.

      2. Identify any costs currently classified as institutional that, in light of PAEA, should be classified as attributable. The rationale for the proposed change should be explained.

      3. How should Retiree Health Benefit costs be classified?

   9. The PAEA establishes a rate floor for each competitive product, i.e., each competitive product must cover its attributable costs. Sec. 3633(a)(2). Product is defined as ``a postal service with a distinct cost or market characteristic for which a rate or rates are, or may reasonably be, applied[.]'' Sec. 102(6).

      Regarding the term ``product''--

      1. Is each International Customized Agreement a competitive product?

      2. Is each Negotiated Service Agreement a product?

      3. Is each special classification a product?

      4. Is each class not of general applicability a product?

4. Ordering Paragraphs

   It is ordered:

   1. Interested persons may submit comments on the questions contained herein on or before June 18, 2007.

   2. Reply comments are due on or before July 3, 2007.

   3. The Secretary shall arrange for publication of this Advance Notice in the Federal Register.

   By the Commission.

   Issued May 17, 2007.

   Signed May 21, 2007. Steven W. Williams, Secretary.

   [FR Doc. E7-10095 Filed 5-24-07; 8:45 am]

   BILLING CODE 7710-FW-P